Question

1. Michael O’Brien is unmarried. He drove for Uber in 2018. He lives with his 24-year-old son, Kevin. Kevin worked in a university and had $50,000 income in 2018. This was his first year driving for Uber so he did not keep track of all his business expenses such as mileage and meals. His total income from Uber was $32,000. Uber gave him a 1099-K stating his total mileage was 20,894 miles in 2018. He did not make any estimated payments in 2018. Based on the facts above, please answer the following questions:
2. 1. What is the best filing status for Michael?
3. 2. Can Michael claim Kevin as a dependent on his tax return? Please explain.
4. 3. Can Michael deduct the total mileage reported from Uber on his tax return? If so, what is the dollar amount? Please explain.
5. 4. Which portion of self-employment taxes is deductible on Michael’s tax return? Where will the deduction show on his return?
6. 5. When you finish Michael’s return, you notice that he has a decent amount of tax liabilities. What tax planning advices would you recommend to Michael for 2018？
7. 6. If Michael cannot make a one-time payment to pay his tax liabilities, what are some other options available for him?

Answer 1

a) If Michael files his return individually, he can claim standard deduction of USD 12000 in 2018, and if he file as Uber driver, he can claim deduction of USD 11492 ( 20894*.55). It means best filing status for Michael is to file as individual.

b) No, as his child is above 19 years old and works for his living

c) Yes, he can claim deduction of USD 11492 only if he is filing return as uber driver

d) Any self-employed taxpayers who owe self-employment tax for the year may qualify for this deduction. Self-employment income includes any of the following: net profit from Schedules C or F, guaranteed payments from a Partnership, or wages from an S-Corporation. Schedule SE is used to determine the amount of self-employment tax that will be deductible. The self-employment tax deduction is be limited to one-half of the self-employment tax figure. Taxpayers using Section A of Schedule SE will deduct the value computed on Line 6 of Schedule A. Those using Section B of Schedule SE will deduct the value on Line 13. Regardless of which Section is used, the deduction value should be transferred to Form 1040’s Line 27

e) Unpaid tax is subject to interest and a monthly late payment penalty. There's also a penalty for failure to file a tax return, so he should file timely even if you can't pay your balance in full. It's always in your best interest to pay in full as soon as you can to minimize the additional charges.

f) If he is not able to pay your balance in full immediately or within 120 days, you may qualify for a monthly payment plan (including an installment agreement). To request a payment plan, use the OPA application or complete Form 9465.pdf, Installment Agreement Request, and mail it to us. A payment plan allows you to make a series of monthly payments over time. The IRS offers various options for making monthly payments:

• Direct debit from your bank account,
• Payroll deduction from your employer,
• Payment by Electronic Federal Tax Payment System (EFTPS),
• Payment by credit card via phone or Internet,
• Payment via check or money order, or
• Payment with cash at a retail partner.